Why the Second Million is MUCH Easier

Throughout my 20s I never had a high-paying job, but I focused on saving some of everything I did manage to earn. To be fair, I could have saved much more quickly, but I also wanted to enjoy my time – so I spent a summer backpacking around Europe, a year traveling around Australia and New Zealand, and lived in Asia for a couple of years. But I also saved – religiously!

I was too much of an idiot to start my own business and earn big bucks, so I invested in the businesses of others – through stocks. I took calculated risks – even borrowing to invest at times, but the big break for me came during the tech stock bubble of the late 1990s. I never made a penny from tech stocks because I never invested in any.

However, while other investors chased the “easy” money from tech stocks, it opened up opportunities to buy boring income trusts at VERY cheap prices. At that time I was buying investments yielding 12-13% in some cases – all tax-advantaged due to income trust tax rules. These lush yields allowed me to earn a decent, tax-advantaged, passive income and retire at the age of 34.

I became a millionaire in my mid-30s through investing. But I slowly began to realize that high dividend yields were not the key to growing my wealth, but instead higher-growing yields (and earnings) were the key! This factor is why the rich get richer over time and the second million is so much easier to get than the first. Let me explain…

The Concept of “Look Through” Earnings

Warren Buffett has used the term “look-through” earnings to account for the earnings of the massive stock portfolio at Berkshire Hathaway. The concept is simple. For example, Berkshire owns billions of shares in Coca-Cola, but the company only counts the dividends as income (for accounting purposes). However, Coke might only be paying 50% of income in dividends and the remainder is being reinvested in expansion or used to buy back shares.

So in reality, according to Buffett, over time Berkshire is becoming wealthier at the rate of Coke’s earnings even though accounting only counts dividends in Berkshire’s earnings. In other words, as part owners of Coca-Cola, whenever Coke invests in new plants or expands its business, Berkshire is becoming wealthier (which will be reflected in the stock price over the long-term).

How Does “Look Through” Earnings Apply to You?

It’s the same thing with you if you’re an investor. Think about this…

Suppose you are on a “million dollar journey” and you work and earn $100K per year, so let’s say $70K after taxes. If you save $30K and live on $40K, you would be gradually moving towards you million dollar goal…

Now let’s suppose you earn $40K per year in dividends (and pay little or no tax depending on your situation). Let’s assume your stocks have an average of a 40% payout ratio with the other 60% being reinvested in your companies – so you’re in essence accumulating wealth at the rate of $60K per year!

From this, it only makes sense that even though you are spending every last cent of your income, you will still accumulate another $1 million much faster than working for it! This is the reason the rich always get richer – automatically (unless they spend their capital).

This realization has allowed me to travel around North America for a year with my family and not worry if I spend every last cent I earn (even though “paying myself” is ingrained as this was the key to my financial freedom). My stocks are doing the heavy lifting of wealth accumulation for me!

My portfolio has a payout ratio of around 35% with dividends increasing annually at a pretty good clip. This means that over 60% of my “look-through” income is quietly building wealth for me, WITHOUT taxes reducing its growth! Many people have asked why I chose the stocks I did and this is the reason I did…I want to build wealth without having to save any more money.

The second million is much easier!

About the Author: Derek Foster left the rat race at the age of 34 despite spending his 20s backpacking across Europe, Australia, and New Zealand – and living a number of years in Asia. He later became “The Idiot Millionaire” using a simple investment strategy outlined in his 6 National Bestselling books. In his free time, Derek writes a free monthly newsletter http://stopworking.ca/free-newsletter/

If you would like to read more articles like this, you can sign up for my free newsletter service below (we will not spam you).

The first million was pretty easy too, wasn’t it? Make a huge leveraged bet on a single stock. Then write a book telling people you ‘retired’ early by investing a portion of your modest salary in dividend paying stocks and how “you can too” by putting away small amounts every month (neglecting to mention the leveraged bet you made and the fact that investing $200 a month will NOT help you retire in your 30’s).

Even savings $30k a year, it might take 20 years to accumulate one million dollars. But if you invest in companies whose stock price increases by 5% a year, that million will turn into two in potentially 10 years or less – without any additional savings. So, the point is still correct – getting your initial capital is the hard part.

This post feels very odd to me. It’s sorta like smoke and mirrors. Take Microsoft for example, tonnes of cash, low payout ratio, therefore the company has been pumping back money into the company.

This hasn’t made millionaires out of post-dot com Microsoft investors.

Sure, some companies retaining earnings can turn these into real organic revenue and income growth, like SBUX has over the past few years, but there is no guarantee that it will earn you a second million easily.

While the ideas in the post are good, i.e. (1) low payout ratios give protection to both the consistency of a dividend, and (2) companies that retain earnings and reinvest in the company can result in growth share prices, the way these messages are bundled together is a little fantastical. For me, the sum of these ideas simply means that total returns (dividends plus capital appreciation) are the most important factor.

In fact, one take the Buffet’s quote’s and position further, whereby he often states that he prefers companies that pay no dividends at all, since top CEO’s can grow these monies better than the dividend receiver can. What do you think Derek? about companies that don’t pay any dividends at all? Aren’t total returns what are actually important?

If you are going to post comments, please make them accurate. Perhaps you have not read my book, but the leveraged bet you are referring to is an investment I made when I was 25 in Phillip Morris (WHICH IS HIGHLIGHTED IN A WHOLE CHAPTER IN MY BOOK, “Money For Nothing”. I have also discussed that move in numerous media interviews.
However, just as one might drive recklessly at 16 or do other things they might never dream of doing in their 40s, I would not recommend huge leveraged bets on stocks in most cases. In fact I also talk at great lengths about that in the same book. My investment approach has indeed evolved over the years – but so should everyone’s unless they are not learning over time…

1. I never said “invest $200 per month to retire in your 30s.” In fact, in my first book, “Stop Working: Here’s How You Can!” on the very first page I write that my personal example is an exceptional case – read it, it’s there in black and white. Also, if you go to page 111 in the same book, you will see that I started with $200 per month in 1992 – this was over 20 years ago. If I were starting today, the initial amounts would be higher if I could afford them. Finally, go to page 112 and you will see that I said I saved $200 per month PLUS EXTRA MONEY such as tax refunds or quarterly gst payments.

I don’t know if you’ve read my book a long time ago and forgotten a lot of what you’ve read or if you’re just making this up from something you heard somewhere or read somewhere online. Let me know the source of your “facts” so I can clear any misunderstanding you might have…

Yes and No (are total returns the only thing to look at).
I think you hit the nail on the head with Microsoft buying back tons of shares and pointing out it hasn’t enriched shareholders. I find dividends tend to be much more reliable on a timely basis than capital gains, so I want to certain income that gets deposited into my account regularly to fund my lifestyle. I would feel VERY UNEASY simply owning non-dividend payers and selling off a portion regularly because then I feel you are at the mercy of the emotions of the stock market.

Having said that, I don’t know enough about Microsoft to comment on share buyback policy, etc, but let’s use another exampel I’m more familair with – Walmart. If you look at it, back in 2002, Walmart stock reached a high of around $63 – and it was also trading at around that price in 2012 at one point. During that decade they bought back almost 25% of their outstanding shares. One could argue that the buyback was simply a “waste of money” as it didn’t “enrich shareholders (and they would be correct from a stock market standpoint). BUT, back in 2002, Walmart traded at a P/E of over 30 whereas in 2012 it traded at under 14. So I think the MARKET re-evaluated Walmart but the intrinsic value of Walmart (esp. on a per share basis) increased. Over time, the buybacks will add value for shareholders (although it was probably a poor decision when the stock was so overvalued…I don’t know if that makes sense…

In response to your link to the Globe and Mail article…Acutally I talked with John Heinzl about this article after he wrote it and explained I thought it was inaccurate or misleading (he even printed a partial retraction in the paper the day after – so newspapers will retract comments if they’re wrong, but I can offer further insight if you’re interest..

The 5 Points he listed (that he claimed were never in my books):

1. You can’t easily retire in your 30s.

This point I agree with, which I why I highlighted this fact on the very first page of my book. The point was that MOST people CAN retire early if they save and invest in dividend-paying stocks (I stand by this point). He also mentioned here that I never mentioned the fact I made a leveraged bet on Phillip Morris (which the Globe retracted the next day because a whole chapter outlining this is in “Money For Nothing”.

2. Trying to time the market can be dangerous

I agree with this and I screwed up at that time. I make mistakes and (hopefully) learn from them. My only certainty is I WILL MAKE MORE MISTAKES. That’s why I chose the name “The Idiot Millioniare”

3. Ignore diversification at your peril

I agree with his point here and his example is Canadian Oil Sands which did represent a huge portion of my portfolio at one time. The problem is he never mentioned WHY it was such a large position. I originally bought the shares before a 5 for 1 split for around $8 per share (split adjusted). They then climbed over the next 5 years or so to over $55/share! My mistake is I never sold any (I just bought and held on). Thet’s the reason it was such a large position…

I will address the other 3 comments in the next message so it’s not too long…

The example he gave in the article is silly because he assumes one investor buys the shares at $10 each, while the other sells put options at $10 each. If the stocks traded at $10, the options buyer would also buy them (that’s how put options work!!) I find a lot of investor don’t fully understand options as they are a little complicated, but anyone can create any fictional scenario where one approach outperforms another. I still sell put options on stocks I want to buy (BUT ONLY ON STOCKS I WANT TO BUY)… I can get into explanations if anyone wants…

5. Maybe Working Isn’t so bad After All…

I want to work until I die, so I somewhat agree. BUT many people hate getting up and going to work every day. The key is not to be financially forced to work. I mean how many people keep working and crossing off the days on the calendar and figure if they can just stay at their dreaded job another 17 years or whatever, they’ll get a pension. I don’t think many employers would allow me to take a year off to travel around North America with my family – so the FREEDOM not to have to work is HUGE, imo!!!

But then again, promising to respond to blog comments can become an unpaid job, LOL!!!

I do like Derek’s books – I’ve read most of them. They tell a good story, and people do make mistakes. I’ve made some mistakes as well, but the great part about investing in stocks is that one or two successful decisions quickly erase all of the bad ones.

@Derek – I’m not sure how my comment was inaccurate when you’ve pretty much confirmed what I’ve said. Yes, you mentioned Phillip Morris in your 2008 book, but not in your first book in 2005.

Ok, you saved $200 a month plus tax refunds and GST cheques. So what’s that, an extra $125 a month?

If you invest $3900 a year and earn 8% a year it would take you 30 years to have a portfolio of $500,000. If you managed to get a 4% yield from that portfolio you’d have $20,000 a year in dividend income.

The math just doesn’t add up unless you include that leveraged bet.

Many people can relate to the sound approach of buying blue chip dividend stocks and holding them for the long term. Heck, that’s exactly what I do.

Maybe my definition of retirement is different than yours, but the way I see it you just left your job, you didn’t retire. Then you sold a story (first book) that played on the fact that people hate going to work every day and if they just set aside some money in dividend stocks they can achieve what you did.

If you called the book something like, “How to build a winning dividend portfolio”, I would have no problem with it. There’s a lot of good advice in there.

That story wouldn’t be as interesting, though. But at least it would be honest.

I wanted to throw two things out at you. I have read your books and adopted the strategy with moderately successful results.

As far as I can recall, you don’t mention at any point about buying gold stocks as a hedge for your portfolio. I think you mentioned in one of your books that in your opinion buying stocks in gold companies is better than buying gold on its own. With Barrick hitting a 5-yr. low in its share price, do you see buying the stock as a risk or as a potentially good value right now ?

Also, you have not mentioned REIT’s much lately. Do you still see them as favourably as you saw RioCan in your first book ? Just curious since there is much hoopla right now about the Loblaws REIT that is supposed to have its IPO later this year.

Derek Foster may be far from perfect (and I’m sure he’ll readily admit that!!).
However, he inspired many Canadians to invest – for that he deserves credit.
His books are very easy to read & have a way of speaking to the average joe blow Canadian in a way many other authors have trouble doing.

While you are technically correct about the books I am going to weigh in only to say that your position of attack or “disgruntled” feelings is strange to me because because from my reading it has said nowhere that Derek is responsible for me enriching myself.

The fact that he was able to do what he did and had a “leveraged” position to help him make his first million is great. His books have taught me exactly what I believe he wrote them for and I have grown my own knowledge from there.

In fact, because of what he was able to capture in his writings my children have started learning about this and if my parents had have taught me the same thing I think I would have been able to beat his 34 year old “choose your own adventure because you are not tied to working if you do not want to” age. As my children will.

That and the fact that those that hate their jobs and follow these teachings make money they can use to be more financially independent. After all, we are all responsible for our own well being when we become adults, so use the tools and don’t worry about the tools that want to be a critic about the tools. In the end they are just tools.

Just thought I would weigh in with the positive side of the discussion. Thanks for your books and continued work Derek.
They were a fantastic starting point and

Yes, there are only so many facts and ideas you can put in a short book. The main point was explaining the dividend investing strategy which I feel is one of the best investment strategies available to investors. Many people get stuck in crummy investments or paying high fees – which really impacts their wealth accumulation.

$200 was the amount I started with over 20 years ago while working at minimum wage jobs – I think a lot of investors would have more money at their disposal. But even using the $3900/year figure you used (which is pretty conservative), if you started at age 20 (around when I started), you would amass over $400,000 by age 45, or over $1 million by age 55 (earning 10%/year – the long-term average of the stock market) – pretty respectable, imo.

I don’t know what is going to happen with gold or gold stocks – the truth is I am not smart enough to know. I am more comfortable buying shares in say Colgate, and betting on the fact most people will keep brushing thier teeth regardless of what happens to gold…

With REITs, I loved them before but my “problem” is that my portfolio has grown and I now don’t need as much yield – so I focus on lower-yielding stocks with higher future growth. But I do think REITs might have a position if some portfolios for those who need the income.

It seems it is all the same people who frequent the dividend investor blogs. I must be one of them. ;-)

Thank you to everyone as I’ve learned a tonne about investing in the past 18 months reviewing blogs, reading Derek’s books, and applying myself to stock analysis.

I built my wealth through high tech executive jobs, being acquired twice and maniacal savings. I’m 42 and can retire but I like working and love the intellectual challenges of building a business and looking for exits… and then on the next thing.

I rebuilt my portfolio from scratch about a year ago. Sold all my conservative, high MER mutual funds and bought into dividend paying stocks. I’m up about 8% in less than 12 months…. and the income generated lets me buy more on market dips. Today I put an order in for 10K in a position I feel is undervalued. That 10K was generated in the last 10 months from my portfolio.

A lot of the stocks Derek talks about in his books have dividend CAGRs of 10%+, when you add drips. This is very, very powerful and fast way to grow cash flow.

10% income growth is a double @ 7 years and triple your income @11 years. Imagine starting at 20 years old.

“Total return” of this strategy might be less than the benchmark over a long period- sure., however, the cash flow grows so fast it can fund a simple retirement much earlier and still be sustainable.

To achieve the same “cash flow goal” with “total return method”, during the same time period, will require much more risk and massive returns. If we could all pick apple stock like 10 years ago, sell it at 700, then no problem. Total return wins. But for most, a dividend growth strategy is low risk and grow cash flow very, very quickly. Goal achieved, more sound strategy, for a short period of time. However I will agree that over a long period, like 20-30 years, total return could smash dividend growth stocks. But at this point, you could have been retired for 15 years already, with the cash flow to support it.

Add in a frugal lifestyle and tax sheltered accounts, no commuting to work, etc, + low income tax credits, it’s very possible to do what Derek wrote in his book without using big leveraged bets or selling books.

Although I will argue that housing is now so expensive, it could take much longer then when Derek started 20-30 years ago.

Reminds me of the old Steve Martin joke:
‘The secret to becoming a millionaire: First…get a million dollars.”

@Derek:
re: #8 “My investment approach has indeed evolved over the years – but so should everyone’s unless they are not learning over time…”

No so.

I’m pretty sure Buffett’s approach has remained the same for the last 100 years (or how ever old he is!).

There is also Harry Browne’s “Permanent Portfolio” which has been static since created. It’s reaped 9.5% annually over the last 40 years (as well as negating almost all volatility assumed with a stocks-only portfolio), not bad for Neanderthal investing.

Speaking of barbarians, GOLD, that high-risk metal, has gained 9.5% annually over the last 40 years. (And you think inflation is low!?)

And it does come across as ultimately contradictory saying ‘do not ignore diversification’ yet jump-starting your portfolio with outright insane margin leverage into one stock.
As well, having your money 100% in stocks is definitely not diversification (please see the above ‘Permanent Portfolio’).

In the end, it’s just one more financial “expert” to go into the pile the all the others. (a search on Amazon for ‘investing’ returns almost 140,000 titles!!!)
If all the info in all the books et al was really so productive, those millions of reader and subscribers would all be millionaires by now.
The lack of millionaire population speaks volumes about the quality/functionality of investment “expert” knowledge and their ineffectiveness to educate their readership.

Just wondering, Derek, is there any *NEW* information and/or strategies in your books that hasn’t been addressed in any of the other 140,000 books available?

If not, I’ll save my $80 and buy a share of Wal-Mart.

p.s. — on this particular blog, the articles penned by FT himself are indeed quite useful and practical (eg. taxes).

Great article! I appreciate the books and the advice and to have read more than one author regarding investing….paying off debt etc. Derek’s books empower the average person to take the plunge in taking charge of their own investment strategies. I finally own coca cola stock which I have wanted since an investment project at high school many years ago. Guess what. Since I bought it, it split and has gone up. So ya a bit of luck and timing as well as picking strong stocks may be required. I don’t get the negativity. There are no guarantees in any investment strategy but I do guarantee you that today I have dividend income that I did not have three years ago and it just keeps growing, I have 20 years until a traditional retirement date and even if the dividend income just helps us retire well, or take a trip once a year down the road, it’s money I would not have had if I had done nothing.

@idiotmillionaire How do you make use of tax advantaged accounts like rrsp to grow your portfolio and reduce the US tax witholding on US securities’ dividends, but at the same time pull out enough dividends to live on and retire early?

Using an rrsp helps accelerate a portfolio, especially when investing for US dividends as you have been doing, but pulling the cash dividends out triggers taxation at your marginal tax rate. Whats the rest of the store here?

SST,
I’ve learned a ton from Buffett as he has readily shared his knowledge. He is 82 and he has INDEED evolved. He used to search for extreme value stocks (from his teachings from Ben Graham) but with his purchase of See’s Candies in the early 1970s, gradually shifted strategies to focus more on high quality stocks with pricing power. This is a much simpler strategy and has been very effective.
The gold example is kind of a “red-herring” as it gained massively after 1971 when Nixon “closed the gold window”, which caused a massive run-up in prices until 1981. I know gold has done well the last decade or so, but gold doesn’t do anything, so I would rather own a dividend-paying stock. I understand the inflation argument, but a company like Coke also protects against inflation (Remember a Coke was 5 cents 50 years ago, today it’s a buck from a vending machine – pretty good inflation protection).

But basically, I don’t own an RRSP, but I do have a spousal RRSP with my wife and that is mostly in US stocks to avoid the witholding taxes. For my portfolio, I also have a lot of US stocks and pay the witholding taxes (if I feel the US company is better than what’s available in Canada).

I find with investing I am usually comparing the trade-offs and choosing the best of many imperfect options – and the witholding tax is the biggest negavite of owning US stocks, imo.

Interest points Derek. While it seems that much of the discussion surrounding the article is on the touchy subject of how ‘easy’ it is to reach early retirement – I’d like to speak to another point you made which I think is important. You mentioned the tax advantages of receiving dividends from your investments. I think this is an important consideration which is often overlooked.

In Canada, if someone has no other sources of income, they can earn almost $50,000 of dividend income tax-free. If that income were earned from employment, you would probably pay about $10,000 in taxes depending on your situation. Same goes for interest income. Investing then in dividend paying stocks can boost your savings significantly – the million dollar goal becomes a lot more tangible then if done together with proper tax planning.

Many people just do the understand the power of compounding and those who do understand it start investing early. A person who starts at the age of 25 will be winner in the race to becoming a millionaire when you compare with person who starts at the age of 35. I would also like to add that only few lucky people become a millionaire overnight otherwise majority of millionaire journey is filled with hard work, patience and right approach to life.

I studied accounting and got my degree, but I wasn’t smart enough to become an accountant, LOL! But I do know a thing or two about the tax laws…

Yes, the very favourable tax laws as related to dividend income was a key plank in my plan to leave the rat race (coupled with the formerly favourable tax rules regarding income trusts – RIP). In fact, I spent a pretty good portion of my first book, “Stop Working: Here’s How You Can!” explaining this!

All things being equal, I would love my portfolio to be stuffed with Canadian stocks, but recent events (the strong loonie) and the fact that there is no Canadian Coca-Cola, Colgate, etc has encouraged me to add more US stocks. Investing is always an imperfect exercise and you have to make the best choices within the constraints – but you raise a great point that many average investors are not aware of…

Mr. Foster, your books inspired me a lot and I was a truly follower of your dividend strategy, but, later I realized that you are hinding a information in your books and videos which how you became wealthy. You must admit that you became a millionaire by leveraging your portfolio and selling your ‘inspiration’ books and videos. You wouldn’t be an millionaire if you have only invested $200/month with 12% return for 10 or 15 years. Lets do a calculation: If I invest $500/month from age 20 with 12% return, I would have only $117819.73 in my 30 and $255285.90 in my 35. Dear readers, in order to get your first million, you need to borrow money to invest (very risky) or sell books as Mr. Foster did. The second million will be easy as Mr. Foster said. Mr. Foster please admit the true.

Mr. Foster’s books and musings are engaging and a great staring point that resonate strongly with yours truly. Consonant with what “SST” has alluded to, there are many investment books out there which are rubbish (fortunately, Mr. Foster’s tomes are not in this cohort). I myself am a highly qualified idiot with impressive credentials, and am able to provide many enthusiastic references. So Mr. Foster has made what could perhaps be pronounced misteps and mistakes? Well, haven’t we all? As he says, hopefully one learns something from these. Many years ago my prime mistake was to indulge in mutual funds peddled by “professional” financial “advisors”. Only later did I understand the ruinous MER’s of about 2.5% didn’t include the stock trading costs in the fund portfolio which could easily add up to an additional 2.5% (as explained in the “simplified” prospectus). Very rarely do you read of this in the canon of investment literature.

As has been alluded to by he and others, piling solely into Canuck stocks isn’t so desireable. There are so many sectors better represented outside Canada with compelling names : Jardine Matheson, W. W. Grainger, Donaldson, Colgate Palmolive, Diageo, Visa, HDFC Bank, et al. These can be spiced with some compelling non-dividend payers like Celgene, Dorman Products & Stericycle.

I read with interest Mr. Foster’s point well taken about seeking shelter from dividend withholding taxes on U. S, stocks by holding same in a registered portfolio, a point not covered by many other authors. For those held outside an RRSP, I’ve seen the foreign dividend tax credit to be no panacea. Having said that, I’ve long hesitated to incur the initial currency conversion cost associated with the bid/ask spread on the dollars to buy U.S. stocks in my RRSP. Sadly, in or out a registered plan, I’ve noted ADR’s to be subject to savage levels of dividend withholding tax in SOME cases. This affects great names rendering them unwise investments: Nestle, Syngenta, Louis Vuitton & Novo Nordisk.

I share Mr. Foster’s aversion to bond investing for diversification’s sake. It isn’t 1981. Maybe I have more latitude in saying that given my defined benefit pension plan. Just the other day I saw a talking head on CNBC expessing his horror of people in the States loading up on “high” yielding munis with long terms. One day bonds will be compelling again but the 3 decade bull in that cohort is long in the tooth. On the other side of the coin people have to be able to sleep at night, too.

Another who says: do as I say, not as I do; I promised you that you too will be rich within ten years like I did, except my situation is unique and not likely to be replicated by you.

I read one of your book from cover to cover. I brushed it aside as too basic (I have an MSc in finance and a CGA) but I would recommend it for most people who simply don’t think about finance and have no strategy. It’s good basic stuff that’s been said 100’s of times and worth drilling in people’s head.

Unlike your marketing promises/lies, they won’t become wealthy by age 34 (if they don’t leverage). But they will enjoy less stress from in their life from having better financial security, and if consistent and without any major life events (illness, etc), they may become financially free and enjoy a nice retirement 20-30 years later.

But when the marketing gimmick is too much, people see through it and call it for what it is, BS. That’s rational.

Wow, tough crowd…I guess it comes with the territory when you challenge the status quo and conventional “wisdom”…Some people are uncomfortable doing things differently…I’m amazed people will keep mindlessly doing what HASN”T worked over and over just because “everyone else is doing it”…

@Kirr Johnson:
Yes, I did borrow to invest and yes I have sold books (after I successfully left the rat race), but I’ve written about all of this clearly in my books. How’s it “hiding” if I’ve written about it? Sorry, not trying to be disrespectful, but that makes absolutely no sense…

@Goldberg:
You hit the nail on the head – I wanted to write simple-to-follow books for investors and that’s why many new investors like them as a starting point (except perhaps for Money for Nothing which is a little more advanced). I don’t pretend to be the ultimate source of investment info – in fact I even include recommended reading lists at the back of most of my books so readers can learn more…

But your comment referring to “promises/lies” is WRONG – plain and simple. Please refer me to the page in any of my books where I make a promise people will be rich in 10 years. That’s one of the annoying things about the internet – people can hide behind an online identity and write anything without having to use facts to support their comments…

That’s also one of the mistakes I made – buying mutual funds and paying the fees. In fact at one point when I started, I thought it would be impossible for stocks to do better than mutual funds. Seeing as mutual funds hold stocks, that thinking made NO SENSE!!!

In all I’ve probably spent around $1,000 on financial books over they years (some of them are listed in my recommended reading lists at the back of my books). I figure that I’ve earned around $1 million thru stock market gains in total. If I have only bought mutual funds, I would have earned a lot less – perhaps half as much – or half a million less (rough estimates).

So I feel my “return on investment” from my reading works out to around 500 times. If a degree costs $30,000 (if the student lives at home with their parents), can they expect this rate of return on their university education? They would need to earn $15 million to have the same rate of return…Yet everyone thinks university is necessary (and I want my kids to go too), but outside of people who read blogs like this, my books, etc, most people never read any investment books – yet the rate of return on that sort of activity could be MUCH BETTER…

Just my thinking…although as a author of books, the above analysis could be construed as self-serving…

It’s funny to see two extremes here, the sceptic hardened vets who want at all costs to bebunk your work. Perhaps being motivated by a history of being burned themselves a few times? vs. financial invalids like myself who have found great value in the lessons taught in your books.

I grew up in a family with zero money sense. I mean zilch! At this point in my life I have become determined to change all that and give my kids a chance at true financial independance when they grow up or sooner! So the basic tenets of your books, especially the power of compounding have given me a new edge. For that, I thank you! Will I hit a million in my lifetime? Maybe not, but I am going to try my hardest and I don’t intend on putting 100% of my chips in investing either!

I would say your supporters are correct, there are few other books out there that can convey what you are teaching the same way. Reason: full blooded financial geniuses are generally socially inept, maybe they can convey really important and complex financial ideas and concepts…but they can’t teach Idiots!

All things said, being rich isn’t just about whats in your portfolio is it?

I am willing to give your ideas a listen, Derek. My one issue so far is that you use WAY too many exclamation marks in your writing. Just got your first book from the library, and am disappointed to find the same amount of “!”s in the book as there are in your blog post here. A blog post is one thing — such sloppiness can be forgiven. However in a published work, an editor should have taken these out — it makes the writing seem showy and insincere.

It sounds like a minor issue, but it does alter the tone of your words, and could be a factor in why people seem to find your work salesman-like, untrustworthy, or unprofessional.

I really enjoyed reading your books. Since I got hold of the first one in 2008 I started investing for income and managed to do rather well so far. Thank you.
As many friends raised, the challenge remains generating enough income to invest in shares without taking risks or borrowing money.
What are your views in creating passive income e.g. investing in buying property and subsequently renting it as an alternative to dividends investing or to generate passive income?

*”The gold example is kind of a “red-herring” as it gained massively after 1971 when Nixon “closed the gold window”, which caused a massive run-up in prices until 1981.”

A “red-herring”?

A red-herring that’s been around as a form of wealth for over 5,000 years.

And yes, after the U.S. government de-coupled gold as backing for their money, and gold went into the free market, it very much increased in priced from its government-fixed level.

A true red-herring would be taking a 2:1 margin loan to speculate on a single stock and using that as a pillar in a how-to-retire-early strategy.

*”I know gold has done well the last decade or so, but gold doesn’t do anything…”

Oh, dear.

Hey, Derek…does land “do” anything?

I mean, sure, you can build stuff ON it, but land itself doesn’t “do” anything.

Did all those great internet stocks of the 90’s “do” anything?
Besides swap hands a million times, that is.

(I won’t even mention the quadrillion-dollar derivatives market!)

I know people who made a lot of money from all three of those “do nothing” items.

You can ignore the facts but that doesn’t make them go away.
The end goal is money, after all.

*”Wow, tough crowd…I guess it comes with the territory when you challenge the status quo and conventional “wisdom”…Some people are uncomfortable doing things differently…I’m amazed people will keep mindlessly doing what HASN”T worked over and over just because “everyone else is doing it”…”

As I stated previously, there are 140,000 books on “investing” available on Amazon.com.

Derek, as I have NOT read any of your books, I ask: how are YOUR books “challenging the status quo” and “doing things differently” than all those before you?

Again, if all the info in all the books et al was really so productive, those millions of reader and subscribers would all be millionaires by now.

The lack of millionaire population speaks volumes about the quality/functionality of investment “expert” knowledge and their ineffectiveness to educate their readership.

@Derek re: #35:
“That’s also one of the mistakes I made – buying mutual funds and paying the fees.”

You should have a chat with Ed Rempel. :)

“So I feel my “return on investment” from my reading works out to around 500 times. If a degree costs $30,000 (if the student lives at home with their parents), can they expect this rate of return on their university education? They would need to earn $15 million to have the same rate of return…”

This is absolutely FAULTY logic.

The $1,000 you spent on acquiring knowledge is now limited to your ability to select stocks. Period. That is your very truncated skill set.
Now, unequivocally ALL the heavy lifting is done by other people, mainly the company in which you invested.
THEY take the risks, THEY innovate, THEY expand, etc., etc.

It is NOT YOU who is giving you a 500x ROI, it is other people.

No different than a professional sports bettor.

I’ve spent MAYBE $100 on investment type books in my lifetime (ever hear of a library? They are very frugal), that would make my ROI much, much greater than 500x. Does that make me a great investor? Does that mean I’m that much better than the guy with the engineering degree or the doctor?

@ Joe the Builder:
You hit the nail on the head. When I wrote my first book, I got my mom to read it. She came back with tons of questions that I would have assumed people knew such as, “What is a dividend?” I redid the books to make them simple to understand. I mean when I’m having computer issues, I hate when people spout jargon I don’t understand…

@Stephanie:
You are bang on – I’m not a great writer (or even a very good one). My books have grammatical errors, etc. I have no defense for that one. I figure (rightly or wrongly) if a book I read was not perfectly written but offered information I found helped me invest better and earn more money, I would still read it because that is my priority. Readers can judge whether the information is useful or not – and as you can see from the comments, there will be varying opinions…

@ Joe the Butler:
Yes, when I wrote my first book, I got my mom to read it. She came back with quesitons I never would have even considered such as, “What is a dividend?” I hate it when I have a computer problem and some tech guy spews out a bunch of jargon I have no hope in understanding. I was advised to get a “professional business writer” to read my books, but I chose my mom and a couple of friends – and it was the best move I could have made!

@Stephanie – guilty as charged – I have no defense. My writing leaves something to be desired. I figured if I read something that offered information for me to make more money investing, I would forgive less-than-stellar writing…but that’s my thinking and it’s not the same opinion other people have. My English teachers probably cringe…

Sorry for the double post…my mistake – my computer froze, so I thought the message did not post…

@ Dimitris
A lot of people have become wealthy investing in real estate. It has the advantage that you can leverage and can touch and see what you own. But unclogging toilets or chasing tenants for rent cheques is not my idea of fun. I have had one management company when we rented out our house while I was in Korea, and it was a NIGHTMARE – very stressful. Others probably have different experiences…

@ SST
The fact that gold has been used for 5,000 year in and of itself does not make it a good investment. A horse and buggy was used for a long time for transportation, but I wouldn’t invest in a buggy making company…

You might be right and gold is a wonderful investment. I wasn’t clear – what I meant is that if you buy gold and bury it for twenty years, when you dig it up you still have the same thing. If you buy land and grow crops or buy dividend-paying stocks, you still have the asset 20 years later, but you also have all the production from the asset for the 20 years. What I’m trying to say is that I feel more comfortable owning a productive asset instead of a non-productive asset.

Now I am an idiot investor and gold might make a lot of investors rich, but I’ll stick to toothpaste becuase I can understand that – gold is beyond my limited brain power to predict where the price is going…Same with internet stocks – never really understood them well enough to “place a bet” so I stuck with the simple stuff I invest in. I completely missed the upside, but missed the downside too, which was fine with me.

@SST
I totally agree with you. I’ve been pretty good at making money by buying stocks and collecting dividends (and I’ve been okay at making kids as I have 5, but I think my wife deserves some of the credit, LOL!) – but I have absolutely no employment skills – that’s why I collect dividends and travel around the continent – nobody will hire me.

I think my books challenge the mantra of “leave it to the professionals and buy mutual funds.” My books are more, “learn, do-it-yourself, and avoid the fees and become MUCH wealthier…oh and I’m an idiot yet I’ve managed to do okay, so with a little learning, it should be within the grasp of most people…I learned from a combination of other investors (I copied other investors) – but I think the strength is the books are easy to understand…

@SST,
But if you owned the land, you could rent it to a farmer – to create a stream of income. If you buy shares in let’s say Colgate, which has paid uninterrupted dividends for over a century, you have purchased a stream of income…dividends.
With gold, you simply buy it and hope it goes up. You can’t really rent out your gold bars or coins (although some central banks do, but not the average Joe). Buying in the hopes of selling to someone else is speculation… Investing in a “stream of income” is what investing is all about. The capital gains become icing on the cake…NOT the main hope – which may or may not happen.

All the best though. If gold skyrockets over the next decade, feel free to tell me, “I told you so!” But I’m just not smart enough to know if the price will go up or down – but I’m pretty sure most people will keep brushing their teeth!

You also have to understand asset cycles. The ‘Permanent Portfolio’, which houses 25% gold, has an equivalent long-run return as a stock/bond portfolio — with much less volatility/risk.

There are a few more years left in its bull run.
Sorry you missed out on a very easy, and obvious, ride.
(Think of gold in 2000 as the Philip-Morris of the asset classes and you might understand.)

Before you label me a ‘gold bug’, I’m not. The end goal is to make the most money, after all. There will most definitely be a time to sell gold, but I won’t be selling in a panic as you did.

*”But I’m just not smart enough to know if the price will go up or down – but I’m pretty sure most people will keep brushing their teeth!”

And I’m pretty sure gold will be around as a form of wealth for another 5,000 years.

I’m also pretty sure there will be another 140,000 investing books published.
And none of them with make the readers rich.

Also very confident the Canadian millionaire population will remain static at ~1%.

Just wondering how you can write a book which touts people can become “wealthy” — if they buy your books, that is — when there is obvious historical and mathematical data showing that it is near impossible to achieve (and maintain) that million-dollar mark and that most millionaires have NOT gained their wealth through the stock market.

Good for you for being one of the few, can’t take that away from you.

Good for you for duping at least 30,000 Canadians. I prefer truth and facts.

I better get started on my own book.

p.s. — your “I’m just not smart enough…” tag-line is a real yawner after the nth time. But I guess in a public forum you have to keep pushing the premise.

Thank you for your candour and transparency in your books and when responding to these posts. You are in a tough spot being the only one here who is an ‘actual’ person not hiding behind an alias (or presumed alias). I appreciate your polite yet direct replies.

You are responsible for me taking action in my financial life – and for that I am grateful. You have changed my life for the better.

An open dialogue on financial matters/strategies is important, however, clearly some individuals have completely missed the point of your article, your books and even your comments. Though I do find it entertaining to read SST’s comments and his/her attempts to refute your knowledge and experience having never actually read your books! No matter how many times you attempt to explain something (such as how gold does not cashflow) people will hear what they want to hear, turn it how they wish, or just be annoyingly pedantic.

I sincerely hope this does not dissuade you from sharing more articles with the MDJ crowd in the future. I know how you appreciate your time as I subscribe to your newsletter. However, you do have a following of grateful readers.

Did a quick check looking at long-term price performance
(30 years of performance, so starting in 1983):

Colgate stock: Then $2.50 Now $108 …43 times
Gold: Then $400 Now $1660 … 4 times

This EXCLUDES dvidends which Colgate has paid and increased every year during this time and gold has paid nothing.

If you are smart enough to trade gold or silver for profit – more power to you! I’m not, so I will stick to blue-chip dividend-payers…There are many people who have different trading strategies, but not me – but kudos to you if you can do it!

Well, I for one liked your books. Even though I worked for stockbrokers early in my career, I never even knew you could buy stocks directly from the company instead of paying broker fees per transaction, or about DRIP plans. At the time, the brokers I worked with charged 10% of the transaction or $50 after, whichever was less. On top of that, the financial industry isn’t very good at helping small investors get started, apart from offering mutual funds and we all know how well that works!

People, why aren’t you taking Derek’s account for what it is? He wrote about his experience and tells you how he got to where he is. Economic conditions were different in the 1990 where interest rates were in the low teens, so it’s wasn’t impossible, all things considered. Read the books, take what you need and leave the rest to reach your goals. Don’t believe in dividend paying stocks as an investment? Then don’t do it, instead of shooting the messenger because you don’t agree. It’s not constructive.

If you’re confused as to why you’re being put in a tough spot here, the answer’s simple. People listen to you because you’re a millionaire, and they want to know how you did it. If you weren’t a millionaire, no one would bother to read your books, because there are no new glorious insights you’re offering.

You would’ve been better off writing a book about how to make risky leveraged bets — that would’ve been a more honest look at how you got to where you are today.

You are really pushing a losing argument. Gold is not an investment, its value is a product of human irrationality. Just because some irrational idiot is willing to pay more than the irrational idiot that bought that cube beforehand doesn’t mean anything. The fact that it has been used as currency in the middle ages when we were humans were far less advanced is not an argument for the validity of gold as a store of wealth. If a smarter civilization were to watch us pulling gold up out of the ground and then burying it somewhere else, they would all be scratching their heads.

It is no more rational than what the islanders of Yap used to do. I think the funniest story that isn’t mentioned in the wikipedia entry is of a stone disc that fell off of a boat and ended up at the bottom of the ocean. It has never been recovered, but ownership of this stone still trades hands and is considered to be one of the most valuable pieces!

Aston your answer is a baseless assumption (like most of what SST says) that people only read his book because he’s a millionaire.

I had no clue, nor do I care, that he is a millionaire. And the “no glorious insight” was not the reason I read his book, despite your conclusion. A lot of this stuff was new to me, when the books came out. There are lots of readers that found information they did not know about and value-heck, read above your post.

SST I love how you always cherry pick your gold returns. I would suggest you do not write a book, but your contributions have attracted more more traffic to comments, but in a negative way for the readers.

@Dave: let me know when you become “wealthy” as per the title of Mr. Foster’s books. I’ll buy a book then.

@im: Thanks for ignoring my statement:
“You also have to understand asset cycles. There will most definitely be a time to sell gold, but I won’t be selling in a panic as you did.”

Just as you sold your principle residence instead of renting it (CASH FLOW!).
Perhaps you think the top is in with RE and acted to cash-out.
That time will come for gold soon enough.

And thanks for cherry-picking.

Any reason you went with 1983 as a starting point in your comparison?
Why 30 years? Have YOU even been buying stocks for 30 years?

Why not pick 1871, the year so many financial “professionals” use as the start for long-term S&P 500 returns (although fraudulently)?
Over this span the S&P has gained ~4% annually on average; price of gold has risen 3% annually on average. Not bad considering gold is high-risk and does nothing, as well as being price-pegged by the government for 100 years of this span.

Perhaps starting in 1972, the year gold was fully in free-market status vs. the S&P 500:
gold average return = 8.5%; S&P average return = 6.7%! How can this be!?!
I’ll even throw in the faulty “dividends reinvested” theoretical return for you = 10%.

Want to compare Colgate over the same time (1972+) — all dividends reinvested?
It gives up 10.8% annual return.
Holding gold as a base (which a very many central banks do), Colgate is worth only 2.3% per year.
That company does a LOT of work for only 2.3% “cash flow”!
(Oops! Forgot, you have pay tax on those dividends!)

Or we could compare gold vs. Colgate from YOUR buy in — late-2004 (I’ll use September until corrected):
CL = 145% total return before dividend tax; gold = 234% total return; silver = 320%.

Ignore the FACTS all you want, most people usually do, most people are poor.

As well, you still have not addressed my question:

How can you write a book which touts people can become “wealthy” — if they buy your books, that is — when there is obvious and overwhelming historical and mathematical data showing that it is near impossible to achieve (and maintain) that million-dollar mark and that most millionaires have gained their wealth NOT via the stock market, but through creation and operation of their own business and through wage payment (that is, they did not “STOP WORKING!”) ?

Perhaps you have a different definition of “wealthy”.

And to all those who think I am so nasty towards Mr. ‘Millionaire Maker”, head on over to FinancialWebRing or to CanadianMoneyForum (of which our own Frugal Trader and the well-respected MoneySense contributor, Canadian Capitalist, are administrators) to read others’ comments on his material.

Read some of the books. Enjoyed them. Found them useful and started taking more control of my own investments. Currently enjoy watching dividends contribute to my net worth, and feel better off for what I’ve learned.

Honestly, who cares if a book’s title is flashy? It’s kind of par for the course in publishing, no? Judge a lot of books by their covers? The content, should you read it, definitely has merit. Probably particularly valuable if you actually bought it thinking it would make you an instant millionaire, since it does cover simple practical realities in an accessible way.

@SST: I have most certainly become wealthier as a result of Derek’s books. However, my definition of wealth is most likely different from Derek’s version, from FT’s version and, dare I say, different from your version. Each individuals definition of wealth will vary.

I know that what I define as wealth could not be achieved without Derek’s sage advice. He has most certainly contributed to the long term financial security for me and my family.

You Ma’am (Sir?), have contributed nothing. You have hooked yourself into some self-righteous obscure tangent to what Derek discusses. Unfortunately your efforts fail to be a conversation, let alone a constructive critique.

But thats just my two cents for whatever they may be worth. I do not wish for this thread to be hijacked any further as it only perpetuates this unproductive noise (which I now feel I have unfortunately contributed to). SST, please feel free to shout into the wind.

@SST Derek concencentrated on cashflow (dividends and distributions from REITS and Income Trusts) to escape rat race. He has admitted he used leverage with the Phillip Morris, a rental property, and RIOCAN REIT. The good thing about cashflow is that money gets paid to you over and over as long as you own the investment. You can spend this cashflow however you choose like helping to increase your means or reinvested it with new capital. He escaped the rat race, (i.e. financial freedom ) cause he had more than enough money coming in than going out in expenses.

Gold and Silver, if you hold it in its physical form, its has to go up in order to sell to make money. Then you have to buy another investment.

People believe this house is an asset. Your house is a doodad ( a liability people think is an asset.) . I assuming Derek is classifying his house as an asset as most people do. A personal residence takes money out of your pocket every month in mortgage, taxes, insurance and upkeep.

You can choose the total amount of your “portfolio” or the income generated from your portfolio as you measure of success.

Sorry, I thought Mr. Foster was selling a “Millionaire-Maker” product.

Guess I was wrong.

That wealthy moniker applies only to the author and his “exceptional” circumstance.

As for hijacking the OP…it’s useless to discuss “the second million” without taking into account how to achieve the first million. And since only 1% of the Canadian population has $1,000,000+…there’s a lot of empty seats in the room.

I’m all ears for those who have made a million bucks using Mr. Foster’s “idiot” strategies.

I chose 30 years because it is the reasonable expected investor time-frame -and I thought it was a resonable long-term snapshot.

We sold our house for a combination of reasons, but yes, one of the factors was that I felt housing prices were on the high side. We also wanted to travel and perhaps visit my wife’s family and renting becomes a headache. That money is/has generating cashflow as it’s been invested in stocks – and has done pretty well, but short-term results mean very little…We also wanted a different area to live – but why is all this relevant to anything?

I understand some people love gold now as it’s had a great run (and you might be right, it might have a lot more upside), but that’s just not the sandbox I play in. Please don’t take it personally or anything, I’m just saying dividend stocks make much more sense to me.

We can go on and on and never agree – but here’s an outside opinion on the subject from Warran Buffett (billionaire stock investor – although he did own silver for a short time a dozen years ago):http://www.youtube.com/watch?v=aOYK0o7ydZg

Sorry, I should add somthing so you all understand the Buffett video clip and what he is saying:

When Buffett analyses something, he assumes he buys the whole thing for comparison purposed. So when he talks about a 67-yard cube of gold, that is roughly equal to the total amount of gold in the world. Then he figures the price per ounce and comes up with a figure of how much would it cost him to buy all the gold in the world.

With that figure, he thinks, with that money would he rather own the big block of gold and fondle it all day or ALL the farmland in the US plus 7 Exxonmobil companies plus $1 trillion dollars in spending money – the price right now is about the same.

I go with Buffett’s thinking on this one, but I have a bias as I think he’s the best investor in the world, so I listen to what he has to say. I undstand others might think differently…

You asked me to address your question about becoming a millionaire so here goes…

I agree with you that most people who achieve wealth do so through starting a business – BUT what if you already have a career and kids and a mortgage? Or what if that’s just not the kind of person you are? It’s pretty hard to up and start a business for a lot of people. But investing allows you to do the next best thing and buy small pieces of businesses – with very little effort on your part. Also it’s not mutually exclusive – if you start a business, you can still invest to increase your wealth and diversify…

A lot of people have invested over time to become wealthy…

Google the name “Grace Groner” – this lady invested $180 and enrolled in DRIPs and it grew to over $7 million! She left that money to charity. Read “Stocks for the Long Run” which details tons of empiracal data, then plug the various numbers into the investment calculator I provide above, and see how much you end up with.

Or if you don’t belive me, read “The Investment Zoo” written by Stephen Jarislowsky (a multi-billionaire Canadian investor (our Warren Buffett) and right in there (I don’t have the book on me, so I can’t quote verbatum) but he mentions that accumulating at least $2 million through investing is well within reach of most average investors. It’s interesting that he also says after decades of investing, he only finds a small number of worthy stocks to invest in.

Or look at the book, “8 Steps to 7 Figures” where the author offers real-life example after example of investors who have invested to become millionaires – and details the strategies they use.

My books were written because I believe in stocks. I enjoy reading 400-page investment books or annual reports (I know, I have no life) – but a lot of people don’t! So my books are sort of a compilation of what I’ve learned from a lot of different investors. I learned and copies THEM (the same way Honda and Toyota originally copied the US car companies to get going)

When I wrote this article, I promised Frugal Trader that I would answer questions from posters – and I think I’ve honoured my promise. But I don’t do my own blog because it can get time-consuming and I have 5 kids and other things I prefer to do, so this is my last post.

Thanks for all the questions and comments and I wish everyone well – (even SST – your have a unique way of expressing your thoughts, but you do extract more comments from me, so I think that “back and forth” might offer everyone more thougths and ideas…

Hi Derek,
Just wanted to say that I enjoy reading books written about the acheivements of others in the financial world. The investment universe is constantly evolving, and I believe too many folks think all things that worked in the 80’s or 90’s will work today. Most investment books should be put into the “history” section of the library. Yes, we should learn from history, but don’t think everything can always be applied today. I find most of your books an entertaining read, but I also enjoyed “The Pig and the Python” and we know how that information “didn’t work out”. However, it got a person thinking, and I believe that is the best part about your books. They make the reader really think about investing.

Gold and Buffett: doesn’t matter what Buffett thinks. In Capitalism, all that matters is money. In #56 the FACTUAL MATH shows gold gives up nearly as much money than a principle basket of companies (or even more money vs. individual stocks). You can choose to ignore this mathematical fact in favour of supporting your belief system, but in no way does that eliminate the truth.

Buffett is good but definitely not perfect (he himself admits he was born into the perfect storm, investment-wise) and a limiting factor to his philosophy is that he NEEDS a company. He will never buy anything which is driven by the human condition (ie. emotions et al). He will never buy art, he will never buy gold etc., even if it means forgoing larger gains.

Never forget the greatest “investor”, Gary Dahl.

Now for some quotes:

*”But investing allows you to do the next best thing and buy small pieces of businesses – with very little effort on your part.”

Exactly the reason so very few people have gained wealth through the stock market — very little effort. It’s so easy to give your money to the financial industry and hope they make the most of it. Remember, the financial “professionals/experts” are largely non-accountable and self-serving (how else do collapsed banks “earn” record profits?). This is actually one point on which we strongly agree — DIY.

*”I enjoy reading 400-page investment books or annual reports…”

So…basically just the opposite of “very little effort”. Weird.
If it’s so easy as you claim in your books, then why did you continue on after reading your first book on investing?

*”So my books are sort of a compilation of what I’ve learned from a lot of different investors. I learned and copies THEM…”

In other words, nothing sets your books apart from all the rest.
Not a great selling point.

*“Stocks for the Long Run”
Oy vey. Yet ANOTHER great fallacy sold by the financial industry (and Siegel teaches this…”stuff”!). There are plenty of Seigel detractors out there, all of them much more accomplished than I.

I’ve yet to get an answer out of Ed ‘Mr. Mutual Fund’ Remple, so perhaps you could answer:
1) before 1977, how possible was it for an average investor to buy ALL the stocks within the S&P 500 in order to reap not only the over-all growth but dividend return? (Don’t forget all the additions and substitutions along the way!)

2) Mr. Remple states a good average for an investment/savings span is 35 years. Why would I use a 200-year long data set to guide my strategy? Especially considering it is unrealistic for 85% of the range (see above).
The author also makes a very faulty comparison with gold, as gold was actual currency during most (86%) of the “Long Run” and its price was set static by the government. Kind of like comparing the S&P 500 to a dollar bill — an exhibitionist demonstration at best.

Would YOU still buy Colgate if the government set the stock price at $2…for 200 years? Didn’t think so. Gold was the ultimate IPO.

*” “The Investment Zoo” written by Stephen Jarislowsky…mentions that accumulating at least $2 million through investing is well within reach of most average investors.”
Then he would be wrong. Because, again, the FACTUAL MATH reveals a very small portion of the population (1%) to possess $1 million or more in investable assets (eg. stocks). Theory is one thing, reality is what matters and millionaires are NOT the average.
Jarislowsky gained his wealth through creation and operation of a company, and not stand-alone equity investing. This line might be blurred for some as his business is equities.

140,000 investment book titles published (and probably just as many financial advisors employed) and the millionaire landscape has not altered.
Either acquiring $1,000,000 is very difficult or the information in the books is near useless or a combination of the two.

Keep up the good work.

p.s. — a person has more chance of winning $20 in the lottery than becoming a millionaire.

“Aston your answer is a baseless assumption (like most of what SST says) that people only read his book because he’s a millionaire.”

But it’s not baseless. If he was “The Idiot Income Trust Investor”, it would be much less catchy. There are scores of other people writing books about the same topics, but none of them are best-sellers.

Try turning your book into a best-seller. It’s not easy unless you have a hook (like being a millionaire), and even then it’s difficult.

When selling a product labeled “Millionaire-Maker” people are buying it under the assumption that said product will make them a millionaire. (It won’t, btw.)

And to be fair to Mr. Foster, it only takes 5,000 sales to register as a ‘Best Seller’ in Canada. So, it’s not like a million people have bought into his scheme.

What I am VERY curious to know, however, is if Mr. Foster is collecting NCBS government cheques — payments designed for low-income families. With his last-reported income of $40,000 for a family of seven — five children and an unemployed spouse — this amount would come out to around $8,000 per year, or 20% of a $40,000 income.

Of course, if all payments comprise total income, the NCBS payments would come in around $9,600 per year or 25% of total income of $40,000.

Now, for someone strutting around the arena marketing himself as a wealthy retired millionaire, yet possibly up to 25% of his income is derived from collecting LOW-INCOME government payments…well, you can make up your own mind on that one.

I’m just wondering if it states in his books to utilize government transfers as a means of income.

I have been quite interested in reading these comments and commend both SST and Derek for you well thought out replies .
I too am a big believer in investing in Canadian good quality dividend paying stocks . This has served me well as my dividend income allowed me to take early retirement at 60 . Furthermore it opened the door for me to defer taking my normal company pension which was transferred to a RRSP to a Large Canadian Bank for their managing . As the proceeds of my company pension was rolled into an RRSP it continues to be shelter from being taxed and continues to grow in value . My plan is to defer using it until age 72 as in the meantime my present income of OAS and Prov Pension plus dividends and a mortgage free house is sufficient to onlive very comfortably . The best part is that because of the dividend component of my income , I pay no Federal Tax and only a very modest Provincial income tax .
I was surprised to read that Derek has turned to US Stocks instead of Canadian Dividend paying stocks given the difference in how each is treated with respect to the Canadian income taxes.
I expect Derek saw an opportunity to improve his income situation and tailored his tax planning accordingly .
In conclusion it is my opinion that folks getting close to 60 years of age really need to look at different options with respect to income tax and consider deferring drawing down on RRSPS if they can until age 72 especially if you plan on living to 90 as I expect to .
While the Canadian Government has been soft on me with respect to what I pay currently in income tax they know that eventually they will get their just pound of tax flesh when I turn 72 when I start drawing on my RRIF . So in the end most of us will return a large part of the tax free dollars we got to save when we die . Wishing everyone a long and happy life .

I must say that I have not read Derek Foster’s books but his post and responses here are coherent and well thought out. He has shown an exorbitant amount of patience in responding to SST’s comments/accusations. It is unfortunate that a guest writer would be subjected to such relentless criticism from an individual who hides behind the anonymity of the Internet. Hopefully other (potential) guest writers are not put off by this type of trolling.

There are many paths to wealth and they all have their pros and cons. At least for the majority of people reading this blog they are taking action. The same can not be said of the general population.

I happen to have the vast majority of my net worth in real estate (paid off principal residence, luxury rental cottage, and 3 rental homes). While I do have some equities they comprise less than 20% of my total portfolio. I’m sure there are countless people who would tell me what I’ve done is wrong but I’m comfortable with the path I’ve chosen and it has allowed me to “retire” in my mid-thirties (I’ve put retired in quotes because I still do some consulting and manage the cottage property). The key is I’m doing what I want to be doing and that to me is retirement. The same can be said for Derek. Weather or not you agree with his strategy it is hard to argue with the results.

But yet our own host, Frugal Trader, hides behind the exact same anonymity. What’s good for the goose…

And yes, I will take anyone who tries to sell the ‘You Can Be a MILLIONAIRE!” scheme to task. If you put it in the market place, you had better be prepared to defend.

That’s why I’ve started writing a personal finance book of my own, so when I guest article on this site in a couple of years you can rip me and my ‘Best Seller’ to bits and I’ll gleefully glaze over most comments. But by then it won’t matter, will it? I’ll have my million, you’ll have your million, most people won’t, and the show will go on.

You do have a point though, it is the internet, all this is free, so you get what you pay for.

“SST” and Mr. Foster both rightly point out the benefits/downfalls of investing in gold using this or that starting point. Gold is difficult to assign a fair value to, being so hostage to sentiment. “SST” has done well in a gold investment? Great, more power to him. I’m always happy to see another man make a good buck.

Personally, I sleep better with my Colgate Palmolive stake. I won’t shoot out the lights but it’s a name with a reasonably predictable earnings stream letting me extrapolate into the future probable pricing.

Warren Buffett said with only a little hyperbole you should be able to describe your investment thesis on a stock with a crayon and a piece of paper. He took that idea one step further saying he would give a failing mark to anyone in a group of business students offering an answer to his asking them to value a technology stock.

I dip my toes in a few technology stocks for diversification’s sake. I do so with some trepidation because they entail so many moving parts. Derek Foster prudently said some months ago he’d never touch Apple alluding to not being able to form a meaningful opinion on same. I bought the beast in September 2006 with a 71 buck handle and sold my 100 shares last November 1 for an even 601 bucks per share. The point is, all the time I held I can’t honestly say I had an intelligent opinion on it’s value or where it should be heading. No help were the pros who were caught up in the hype, B. S. and murky questions about competition and vagaries of all the moving parts. Can some of the same be attributable to gold?

Mr. Foster writes simple but genuinely helpful books on the genre. His are not going to be stealing any glory from Soros’ “Alchemy Of Finance”. The latter I found impressive but not really that useful to mere mortals like me. By the way, reading it also short circuited my feeble brain giving off smoke through my ears.

I like to maintain a cohort of 30 stocks and hopefully not trade very often. In actual fact very few are going to have a chance of shooting the lights out. Derek Foster’s slow and steady sounds OK to me.

Good points, but it’s not about owning gold vs. stocks vs. real estate vs. bonds etc., it’s about owning the right asset class at the right time.

Mr. Foster’s strategy will never create a millionaire out of his readers because, for one thing, he suggests stocks, and stocks only. This is not diversification by any means. At best, Mr. Foster’s strategy possibly provides a somewhat stable growth environment.

I would further elaborate on your post (and Mike’s re: RE), but these are points I will be entering into my manuscript, and I want to sell as many books as possible so I won’t be giving away too many secrets!

Speaking of secrets, has anyone unveiled if Mr. Foster utilizes the National Child Benefit Supplement (NCBS) low-income family payments as a sector of his income?
Or if his books state using government transfer payments as income to “STOP WORKING” ?

@SST, how could someone receiving enough income from investments not to work qualify as low income to receive benefits? You admit you haven’t read Derek’s books, so why are you insinuating that Derek is falsifying information to milk the government? On what evidence are you basing that assumption?

I sincerely hope you get treated with the same respect you’re dishing out when your book is published.

If that figure of $40,000 per year is correct, then I don’t know how a person with 5 kids can live on that, or why they would want to. That isn’t close to anything that most people would call “retirement” so I think Mr. Foster is a bit mis-leading.

Also, I find it very sad that anyone as young as he is wants to or is “retired.” Billions of people on this planet are cold, hungry, poor, uneducated, sick, and/or at war, and he is “retired”???? Give me a break; talk about selfishness….

@SST, whether or not you’re right that Derek Foster is getting Goverment cheques, your calculation based on your unverified assumption is not evidence that he is. So why are you throwing these accusations in the ring?

Why don’t you just say you disagree with Derek and leave it at that? Just as you don’t believe in “blind faith”, don’t assume that the reading public is so stupid that they are. It’s pretty arrogant on your part that you think you need to shine the light on exaggerated language. The basic information concerning investing in dividend bearing investments is still sound.

@S.R.W. On what evidence do you base your assumption that’s it’s impossible to live on $40,000 with five kids? Unless you control someone’s wallet and verify for yourself what their spending patterns are, you don’t really know whether it possible or not.

As to your second comment about being retired young as selfish, what do you know how someone uses their free time? Have you considered that he may be devoting his time to charity work? Compared to us working stiffs, he’s got 40 hours a week more than we do for things he considered important because he doesn’t need to be earning a living. There are better examples of selfishness and greed in this world.

@LPC: It’s not accusation/assumption/exaggeration — Mr. Foster provided the information himself. Thus, if it is indeed all those villainous descriptors, then it’s Mr. Foster to blame.

When someone publishes a book entitled “STOP WORKING”, under the guise of being able to “retire” on “dividend bearing investments”, yet admits a portion of his “retirement” income is derived from government cheques…I want to know if any portion of those government transfers is comprised of NCBS payments.

I take no offense to Mr. Foster being “retired”, because he isn’t, really. He works on writing more books and giving talks etc., as well as managing his portfolio and family. We live in a capitalist society, after all; if a person accumulates enough wealth to enable him to not have a direct employer, then so be it.
It’s not like he collects CPP either, a true sign of retirement!

I did not say that a person could not live on $40,000. I just don’t know why a person would want to. I have 3 kids and I spend $10,000 a month… To each their own.

Mr. Foster is not “retired” as he claims. He writes books etc. etc. What he means is that he was able to be self-employed at age 32. I did it at age 23.

I have had correspondence with Mr. Foster and he has lead me to understand that he “works” his business, raises 5 kids via home schooling, is presently travelling in a trailer full time and has made no comment about any kind of charitable or philanthropist type of activities. Frankly, reading between the lines, he it too busy, not in any one place for long, and his net worth does not support much giving. That’s is why I think a young guy like him should do more working and make more money to do more giving….

By Mr. Foster’s definition of “retirement” I have been retired a long time, I am not 60 yet, have never been busier, and give more money away in a year than most people make, trying to make the world a better place. My point is that Mr. Foster does not seem to feel that way, which I find unfortunate. We live in far too much of a, “it is all about me” world. How sad….

@S.R.W. Because his definition of being retired doesn’t match with yours, he’s not retired? Is that really important? What does retired mean, in your opinion then? Don’t forget to wear your “Internet Retirement Police” (IRP) hat on while thinking about it. My take is that self-employed implies that you still need to work to earn money. Retired doesn’t have that connotation.

@SST, same to you. Wear your IRP hat proudly. As for government cheques that Derek is receiving, it’s none of your business, really. If you really want to know, write to your MP complaining about it and see if he’ll break privacy laws for you to find out. There’s no point ranting about it until you have the power to do anything about it.

As a person of the “older generation” it never ceases to amaze me that now that we have the “anonymous internet” that people often voice their opinion (educated or otherwise) without the slightest bit of dignity or civility. In short, it is filled with nasty rude people who cower under the disguise of the net. Politeness does go a long way….

I suppose if you asked the average Canadian what “retirement” was, they probably say that it was the ability to live at home, without employment, and still pay the bills. If you have a different definition than that, you are welcome to your opinion which I will not be so rude as to condemn. Please do not condemn me for mine.

Frankly folks, I have bigger fish to fry than to get into arguments with people, so I wish you all a good day, and I am out of here….

Not necessarily so. But we do live in a capitalist society, by which money is the measuring stick. Generations have been programmed to get as much as they can (the article is entitled “The SECOND Million…”, as if one million wasn’t enough; and “Greed is Good!” won an Oscar, remember) among other ugliness. The amount of money won’t make the world a better place, only better people can do that (otherwise the US would be a $15 trillion Garden of Eden!).

A reflection of this is Mr. Foster’s books being national “best sellers” — “You can Stop Working!”, “Lazy Investor”, “YOU Can Become Wealthy!” — kind of reveals the desperate/greedy nature of some humans.

You make the world a better place by giving money away, others make the world a better place by calling shady practices into the light. We all do our part. It is a bit odd, though, stating you spend $10,000 a month on three children in the same breath as your quote at the top.

@LPC: the source of Mr. Foster’s income is actually my business, as he has revealed his income and sources (in partial) in a public forum in order to support the sales of his product. If I am going to spend money on his “Stop Working/YOU Can be Wealthy/Millionaire-Maker” strategies, I want to know if I need to have multiple children and a dependent spouse in order to attain the same “low-income retired millionaire” status as the author.

I might have to cede and actually leaf through his material to find out first hand.

Thanks.

p.s. — want a great read about a quality and very authentic Canadian millionaire? Read “Driven: How to Succeed in Business and Life” by Robert Herjavec.

What caught my attention definitely wasn’t what Foster said about oil — we use it now, we’ll be using it in 50 years — it’s what he says about his current account and lifestyle:

“I don’t spend all of the money that my portfolio brings in.”

Of course he doesn’t.
If he did, he would be living on far more than his last reported $40,000/yr and would NOT qualify for any “poor family” government assistance money.

I applaud Foster for being a true Capitalist and taking advantage of the system (money doesn’t have morals, after all). Just wonder if The ‘Idiot Millionaire’ will ever come clean and re-dub himself ‘The Low-Income Millionaire’?

SST, you’re still harping on about this after all this time?!? I mean, you have the time? Get. A. Life. Do your research and only come back when you have proof that Mr. Foster is getting Government assistance. Maybe the rest of us will care by then. As it stands, in February and now, you don’t have the facts, like Mr. Foster’s tax return to back-up your accusations. Better yet, go to appropriate authorities with your suspicions instead of continually spreading rumours of wrongdoing based on your interpretation of someone else’s lifestyle.

LPC, you seem to care a lot about what I care a lot about…I love you, too.
I only go on about this as much as others go on about the infallibility of the stock market or mutual funds.

From Mr. Foster’s very own fingertips: “posts should be factual, imo…people seem to believe anything and don’t question the reliability of the source…”

As it stands, in February and now (and always), Mr. Foster continues to diligently avoid chewing on this slice of his financial pie. I have repeatedly questioned the source, it has repeatedly remained silent.

Yes, yes, I know, we should all just shut up, turn a blind eye, and let the hoards of financial industry gurus and semi-professionals spew out whatever kind of fantastical drivel they wish. Perhaps you are a staunch supporter of disclaimer-based legal fraud?

Or we can strive to propagate truth and integrity — in all forms — in capital markets. I choose the latter, although it might be more successful trying to breed unicorns.

As per your request to “Get. A. Life.”, me and my life just enjoyed a three week paid vacation in Hawai’i (gotta love gov’t jobs!). Thanks for caring. :)

SST:
Good for you for having enjoyed Hawaii. I’m just coming back myself from my cottage on Nantucket Island.

You say: “Mr. Foster continues to diligently avoid chewing on this slice of his financial pie. I have repeatedly questioned the source, it has repeatedly remained silent.” And he hasn’t answered, with good reason: he doesn’t have to provide you with an answer and/or it’s none of your business. So, that begs the question, why are you persisting in asking? Two, why aren’t you independently conducting a private investigation to uncover the truth without Mr. Foster’s help? Three, why haven’t you gone to the authorities with your suspicions already?

If you haven’t done an investigation or gone to the authorities, why do you think these anonymous posts on this forum is an appropriate venue to get your accusations resolved and answered? You’re just crying wolf, otherwise.

I’ve already asked some of these questions in my previous post, and instead of answering, you try to turn the situation around by insinuating that I’m supporting fraud. Really? You need to stoop that low because I refuse to believe you without proof?

I’m asking again: where’s your proof and evidence to back up your accusations of fraud? Until he’s arrested, he’s presumed innocent under the law. Or don’t you believe in that concept either?

One: “…he doesn’t have to provide you with an answer and/or it’s none of your business.” True, it’s not. But when a person sells themselves and their product as being one thing, yet it is something else in reality… ‘Legal fraud’, as I like to call it; unfortunately not an arrestable action. Foster seemingly has no problem discussing other areas of his income (dividends) or government transfers (taxes) — yet refuses to discuss the whole truth on other income and government transfer topics.

Two: What better way to conduct an investigation than to go straight to the source — Derek Foster himself? None of his past interviewees have bothered to ask him any sort of questions regarding this issue, either because of lack of knowledge or lack of guts. Fortunately, we still have privacy laws in this country which don’t allow citizens to root through their neighbour’s documentation.

As for your concern over anonymity…the very host and owner of milliondollarjourney.com is anonymous and Foster saw no problem lending his name and content to such. If Foster sees such forums appropriate to push his products, then the same forums are just as valid place to seek the truth.

Merely wanting to get 100% of the facts before I decide to part with any of my hard fought cash for any of Foster’s products.

@SST Bravo! I am glad to see that someone finally spoke the truth. When I saw his interview article with the globe and mail, it was unbelievable to know that asset rich people can collect so much money from government in Canada. He was not shy about it. His wife is a Korean like me. I was pretty upset about that. Since I love Korea. I was working hard and struggling to take care of my young child. I felt very much cheated. His suggested early retirement is not honest approach.
Back then he had two children. Collecting about $400 according to the article.
Child support should be based on the asset and the income. Working and building personal wealth has been blessing. My family asset is about1.5 mil. Which is from frugal life style, saving and investment in stock, mutual fund and property.

Thank God for blessing me to raise my children with honest money.

P.s. I read all his books. Borrowed from library last year out of curiosity.
We should all write a book with a catch title like “How to be a smart millionaire without child support benefit…”

I seek only to expose factual truths, especially when it comes to money matters. Most of us spend our lives working too hard and too long to be bamboozled by salesmen of any stripe.

However, some people, on both sides of the equation, would rather not face facts. Some would rather remain doe-eyed at their ‘Heroes of Hope’: “If he can do it, I too can become an Idiot Millionaire!”. On the flip side, some know that exposure of the truth could reduce, or eliminate, their vantage point.

As an example, Mr. Foster has never once publicly addressed, either in the media or in his publications, the issue of his utilization of the National Child Benefit Supplement low-income family payments to supplement his million dollar portfolio (kinda Lance Armstrong-ish).
It’s much easier “to build wealth without having to save any more money” when a third-party is supplying a nice chunk of your income.

Lifted from LessWrong.com:
” ‘Truth’ is a very simple concept, understood perfectly well by three-year-olds, but often made unnecessarily complicated by adults.”